05/11/2015 05:14 GMT | Updated 05/11/2015 05:59 GMT

Tax Credits: Resolution Foundation Think-Tank Gives George Osborne Five Suggestions To Leave Benefit Alone

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British Chancellor of the Exchequer George Osborne delivers his keynote address to delegates on the second day of the annual Conservative party conference in Manchester, north west England, on October 5, 2015. AFP PHOTO / PAUL ELLIS (Photo credit should read PAUL ELLIS/AFP/Getty Images)

A think-tank has offered food for thought to George Osborne over how he can find £4.4bn without cutting tax credits.

The Resolution Foundation today publishes a five-point plan that could get the Chancellor out of his political hole after the House of Lords blocked his attempts to slash the top-up benefit for low-paid workers.

The organisation, which will present its findings in Parliament this morning, suggests phasing in the cuts would still leave 2.7 million families worse off and simply extend the political pain for the Tories.

Only imposing the cuts on new claimants would only make modest savings and will undermine the Government's Universal Credit single benefit, they say.

Instead, it offers a menu of changes to taxation thresholds and pensions.

“If the government is serious about providing more help to working families, its only option is to reverse the cuts," said David Finch, senior economic analyst at the Resolution Foundation.

"Fortunately there are plenty of ways to fund this move – such as cancelling tax cuts targeted at better off households.

"And with a surplus of close to £12bn pencilled in for the end of the parliament, the Chancellor can afford to cancel the tax credit cuts and still eliminate the deficit.”

  1. Slow down the increase in the threshold where workers start to pay income tax

    Increasing the income tax personal Allowance in line with inflation, rather than accelerating it towards £12,500, would raise £4.9bn by 2020.

  2. Or look to find it from higher rate tax payers

    It suggests increasing the basic rate of income tax limit to rise in line with inflation, rather than accelerating it so the higher rate threshold reaches £50,000, saving £1.3bn by 2020.

  3. Osborne could claw back inheritance tax hand-outs

    Reversing the increase in the inheritance tax threshold and cuts to corporation tax would save £3.4bn by 2020.

  4. Raid the state pension coffers

    Clawing back the over-indexation above earnings of the state pension - it was put up by more than its legal obligation - from the last Parliament by limiting pension rises in this Parliament would save around £6bn.

  5. Reverse various tax breaks

    Returning spending on tax reliefs to 2010 levels by 2020 – and thereby reducing the UK’s current £100bn spend on around 1,000 different reliefs – would save around £10bn.


Tax credits are welfare payments to families raising children and working people on low incomes.

More than three million families will lose an average of £1,300 a year from April

The cuts will deliver £4.4bn of the Chancellor’s planned welfare cuts by reducing the earnings level at which tax credits start to be withdrawn from £6,420 to £3,850.

The Government says eight out of 10 would be "better off" overall from a package which also includes increases in the minimum wage for over-25s, rises in the income tax threshold and extended free childcare.